Special ProfileJames E. Meade, 1907?1995

Review of International Economics 4(3), 382-386, I996

Special Profile* James E. Meade, 1907-1995 W. Max Corden** In 1947, at the age of 40, James Meade became Professor of Commerce (with special reference to international trade) at the London School of Economics. He held this position for ten years. During these years he did the work for which he received, jointly with Bertil Ohlin, the 1977 Nobel Prize-the first, and so far the only, Nobel Prize awarded specifically for international economics. Essentially, this work is represented by two great books, The Balance of Payments (1951) and Trade and Welfare (1955), though The Theory of Customs Unions (1955) has also been very influential. After the years at the LSE he went to Cambridge and kept on writing, even for many years into his retirement, but not on international economics. I shall say something below about this later period, and also about his influential earlier work and experiences, which included a year in Cambridge as part of Keynes’s “circus” and close collaboration with Keynes during the war. But mainly I shall focus on the crucial ten LSE years. Most students, and possibly many readers of this review, know the theory of internal and external balance through the Swan diagram, and believe that Swan (1963) originated this theory or approach. They are also likely to believe that the “theory of domestic distortions” originated with Bhagwati in various writings, especially Bhagwati and Ramaswami (1963), and with Johnson (1965). Furthermore, they may believe that the theory of the second-best originated with Lipsey and Lancaster (1956). Of course all these authors and others made important and very influential contributions, reformulating problems, presenting essential points more clearly and neatly, and carrying the work further forward. But the basic ideas can be found in Meade’s two books. The theory of internal and external balance formed the centerpiece of The Balance of Payments. Swan just summed up many pages in one neat diagram. The theory of domestic divergences (as Meade called it) was fully expounded in two substantiai chapters. The theory of the second-best was quite central to Trade and Welfare (1955), and indeed Meade invented the term “second-best’’ which is now part of every economist’s language, as well as exploring many of its implications in four chapters. It is hard to believe that something that now seems so obvious to us needed to be invented. From the point of view of the history of economic thought, it is particularly worth rereading the chapter entitled, “The Second-Best Argument for Trade Control: ( 3 ) Domestic Divergences.” Apart from Harry Johnson and myself (Corden, 1974), the economist in our field who was most influenced by Meade, and who most successfully advanced beyond him (indeed matching him in long-run impact), was Robert Mundell. This is evident from numerous citations in Mundell (1968) which reflect his very careful study of The Balance of Payments. Certain key ingredients of the theory of optimum currency areas (the role of labor mobility in balance-of-payments equilibrium) and of the Mundell*Editor’s note: The regular profile series is published once a year. ** Corden: Paul H. Nitze School of Advanced International Studies, The Johns Hopkins University, Washington, DC 20036. 0 Blackwell Publishers Ltd. 1996, I O X Cowley Road, Oxford OX4 IJF. U K or 218 Main Street, Cambridge, MA 02142. IJSA.

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Fleming model (the effect of fiscal and monetary policy when there is capital mobility) can be found in that book, but Mundell did go a very long way beyond Meade. In some interesting remarks in Mundell (1968, p. 113) he noted that Meade made a major contribution in trying to integrate the classical and Keynesian traditions in international monetary economics. H e wrote that the two-volume work by Meade “is a landmark in the theory of international trade and economic theory in general, and it will be the source of fruitful insights into economic theory for years to come.” But he also noted defects in organization and exposition (“lucid, but unexciting prose and forbidding notation in the first mathematical supplement”), and also “the author’s reticence in drawing attention to the originality of his own work.” The two new features of The Balance of Payments were its integration of income and price effects in a general equilibrium framework, and its policy orientation, focusing on the two instruments (exchange rate adjustment and financial policy) and two targets (internal and external balance) approach. In both respects there was a departure from previous theory, which had tended to keep income and price mechanisms in watertight compartments and had dealt mainly with automatic processes of balance-of-payments adjustment. But a great deal else was new, or at least was the first systematic exposition of an approach. An example is the model with home (or nontraded) goods and traded goods, consisting of exportables and importables, now known as the “dependent economy” model. Coming back to Trade and Welfare, there were a number of important and original features, apart from those already mentioned. One was the analysis of factor movements and of factor controls. Another was a model of the effects of migration on t h e terms of trade, and a third was a contribution to optimal population theory. The whole concept of embracing trade and factor controls in one methodology was novel. He rejected the nihilism of what was then called the “new welfare economics” and preferred to use “distributional weights,” thus anticipating subsequent work in costbenefit analysis. I particularly liked his distinction between the marginal and the structural conditions for efficiency and for appropriate trade intervention, especially as applied to the infant-industry argument for protection. I became Meade’s student in 1953. I found him reticent, very polite, and indeed the essence of an English gentleman, who corrected my most egregious mistakes with the utmost humility. If I was clearly wrong he might say hesitantly, “Don’t you think, that maybe the curve should slope downwards. . .” and gradually I learned that he was always right. LSE graduate students at the time (not all his personal supervisees) included Kelvin Lancaster, Richard Lipsey, and Tad Rybczynski (also Jacques Parizeau, later the leader of the Parti Quebeqois). From the United States, working for US degrees and visiting for a year, came Bob Mundell, Peter Kenen, and Dick Cooper.’ While a graduate student I studied Meade’s two major books extremely carefully, being one of that tiny minority that actually liked his thorough, utterly clear, unpretentious exposition. The result was that numerous later articles by various people containing supposedly new ideas, or even new wrinkles on old ideas, seemed obvious to me. This was especially true in the field of optimal trade policy, but also in public finance: 1 knew it all, and at first I found it difficult to see why the trumpets were blowing. I obtained an insight when I took up a one-semester visiting assistant professorship at Berkeley in 1965, my first teaching post in the US. I found that students in international economics were all thoroughly familiar with an article of mine on the theory of internal and external balance which expounded geometrically a whole lot of ideas that were mostly (though, I hasten to add for the sake of my own reputation, not all) in The Balance ofPayments. Yet nobody (apart from the professors) seemed to have read, or 0 Blackwell Publishers Ltd. IYYh

384 W. Max Corden even perused, the great book itself. The general point is one that Johnson (1978) noted, namely, that Meade’s impact was made, to a great extent, through other more succinct writers, including all the students and visitors to the LSE I mentioned earlier. Incidentally, Harry Johnson has described himself as a student of Meade’s (Johnson, 1978) but this was true only in the sense that he was a close student of Meade’s work. During those 10 years he was a lecturer at Cambridge and then professor at Manchester. In 1956, when Meade was on leave in Australia, Johnson came weekly to the LSE to lecture (at great speed) on international trade theory. Let me now say a few words about Meade’s pre- and post-LSE life. He studied classics for two years (real classics, not our classics!) at Oxford, and then switched to economics. After two years of economics, he was elected a Fellow of Hertford College and became a Lecturer in Economics at Oxford. But he did have to learn some more economics, so the College sent him to Cambridge “to learn my subject before I started to teach it.” He was in Cambridge for one year, becoming part of a group (the “circus” which discussed Keynes’s new ideas. (All this and more is described vividly in Vines (1987)). He played a role in the development of the multiplier. While at Oxford he wrote an important and widely read book, An Introduction to Economic Analysis and Policy (1936) which expounded very clearly the new ideas of Keynes, and also the new theory of imperfect competition. In 1937 Meade went to Geneva for three years, to work with an impressive team at the League of Nations; his responsibility was to prepare the World Economic Survey. During the war he joined the Economic Section of the UK Cabinet Office, working closely with Keynes. Jointly with Richard Stone he produced another major and pioneering work, namely, the first double-entry national accounts (Meade and Stone, 1944). Stone later obtained a Nobel Prize for his work on national income accounting. Meade was closely involved with the preparation and negotiations for what ended as the Bretton Woods agreement. His special contribution to postwar planning was to draft an important paper that provided the basis for the UK position on the postwar international trade regime. He was a strong advocate for a free-trade regime, a view for which Keynes required persuasion; see Vines (1987). There is a long story here, and much has been written. It suffices to say that Meade was an important player. Meade became Head of the Economic Section from 1945 to 1947 (during the first two years of the Attlee Labour government), and then went to the LSE. Out of this immediate postwar period came another widely read book in Britain, the title of which indicates his general position: Planning and the Price Mechanism: The Liberal Socialist Position (1948). His theme was the important role that prices and markets-as against quantitative planning-should play in organizing an economy. Essentially, he was aiming at supporters of the Labour Party. I shall not elaborate much here on his post-LSE years. He covered an extraordinarily wide range, from pure growth theory, the theory of a “just society,” poverty and equality, the UK tax system, and the reform of the labor market so as to limit the monopoly power of labor unions-a major problem in Britain until Mrs Thatcher dealt with it. To my mind the most important or influential books coming from that period were Eflciency, Equality and the Ownership of Property (1964) and The Intelligent Radical’s Guide to Economic Policy: The Mixed Economy (1975). In the first book he explored the forces underlying the accumulation of capital and the relationship between earned and unearned income. He put up proposals for reducing inequality of property ownership. He has been a life-long advocate of prices and free markets, but also of redistributive fiscal policy and a concern with inequality and poverty. With his emphasis on markets combined with redistributive and welfare policies, he foreshad0 Blackwell Publishers Ltd 1996

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owed the recent market-oriented social democratic policies in many European countries and Australia. Meade could be criticized as ignoring political economy, interest-group pressures, and various factors that lead to government (as distinct from market) failure. Yet, he was thoroughly aware of the dangers of the authoritarian socialist society. In his words, “the intelligent radical . . . repeats the age-old question: Who will guard the guardians? If one wanders too far down the socialist path, freedom disappears, the costs of bureaucratic controls mount, and among the innumerable guardians will be found many fools and many knaves” (Meade, 1975). He believed in the role of reason, or at least in the possibility that persons of power or influence can be influenced by cogent arguments. His unifying theme was “a belief in the usefulness of economic theory as an instrument for enlightening the discussion of policy, and guiding policy-makers’’ (Greenaway, 1990). James Meade died on 22 December 1995. His last book, Full Employment Regained, was published during 1995. As the obituarist, Richard Layard, wrote in the Zndependent, “James Meade was one of the greatest economists of his generation.” In this paper I have drawn on Corden and Atkinson (1979), on Vines (1987), and on Greenaway (1990). The article by Vines is the most comprehensive article on Meade, covering the details of his whole life. It is especially interesting on the war years, and I recommend this article to anyone wishing to know more about a remarkable man. The Greenaway article contains a thorough review of Meade’s work, particularly postLSE. In addition, a critical, opinionated and vcry interesting discussion of Meade’s work up to 1973, written for the Nobel Prize Committee, is in Johnson (1978).

References Selected W o r k s by Meade Meade, J. E., A n Introduction to Economic Analysis and Policy, London: Oxford University Press, 1936. , Planning and the Price Mechanism: The Liberal Socialist Solution, London: Allen and Unwin, 1948. , The Theory of International Economic Policy, vol. 1, The Balance of Payments, London: Allen and Unwin, 1951. , “External Economies and Diseconomies in a Competitive Situation,” Economic Journal 62 (1952):423-35. , A Geometry of International Trade, London: Allen and Unwin, 19.52. , Problems of Economic Union, London: Allen and Unwin, 1953. , The Theory of International Economic Policy. vol. 2, Trade and Welfare, London: Allen and Unwin, 7955. , The Theory of Customs Unions, Amsterdam: North-Holland, 1955. , A Neo-Classical Theory of Economic Growth, London: Allen and Unwin, 1960. , Efficiency, Equity and the Ownership of Property, London: Allen and Unwin, 1964. , “Population Explosion, the Standard of Living and Social Conflict,” Economic Journal 77 (1967):233-55. , The Growing Economy, London: Allen and Unwin, 1968. , The Controlled Economy, London: Allen and Unwin, 1972. , The Intelligent Radical’s Guide to Economic Policy, London: Allen and Unwin, 1975. , The Just Economy, London: Allen and Unwin, 1976. , “The Meaning of Internal Balance,” Economic Journal, 88 (1978):423-35. Meade, J. E. and J. R. N. Stone, National Income and Expenditure, London: Oxford University Press. 1944. 0 Blackwell Publisher\ Ltd. 1996

386 W. Max Corden General References Bhagwati, J. and V. K. Ramaswami, “Domestic Distortions, Tariffs and the Theory of Optimum Subsidy,” Journal of Political Economy 71 (1963):44-50. Corden, W. M., Trade Policy and Economic Welfare. Oxford: Oxford University Press, 1974. Corden, W. M. and A. Atkinson, “James E. Meade,” in D. L. Sills (ed.), International Encyclopedia of the Social Sciences, Biographical Supplement, New York: Free Press, 1979. Greenaway, D., “The Intelligent Radical on Economic Policy: An Essay on the Work of James Edward Meade,” Scottish Journal of Political Economy 37(3) (1990):28&98. Johnson, H. G. “Optimal Trade Intervention in the Presence of Domestic Distortions,” in R. E. Baldwin, et al., Trade, Growth and the Balance of Payments, Amsterdam: North-Holland, 1965. , “James Meade’s Contribution to Economics,” Scandinavian Journal of Economics, 80 (1978):64-85. Lipsey, R. G. and K. Lancaster, “The General Theory of the Second-Best,” Review of Economic Studies, 24 (1956-57):ll-32. Mundell, R. A., International Economics, New York: Macmillan, 1968. Swan, T., “Longer Run Problems of the Balance of Payments,” in H. W. Arndt and W. M. Corden (eds.), The Australian Economy: A Volume of Readings, Melbourne: Cheshire Press, 1963. Vines, D., “James Edward Meade,” in J. Eatwell, et al. (eds.), The New Pulgrave Dictionary of Economics, London: Macmillan, 1987.

Note 1. Another US student was Thomas M. Klein, later of the World Bank, to whom I am indebted for valuable comments on an earlier draft of this note.

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